February 28, 2014

Part 2 of Breakthrough Therapies will Transform Healthcare – and Healthcare Investing

Attack a target unique to the cancer cell and you kill it without killing healthy cells @TimBliamptis @WeathergageTeam

The second of two posts on healthcare investing.   In the previous post we discussed the improved regulatory environment for “Breakthrough Therapies.” In this piece we discuss why we expect a surge in the number of therapies that indeed qualify as “breakthroughs”.

Over the last two decades the cost of genomic testing has declined along a Moore’s Law like trajectory.  So far therapeutic benefits have been relatively rare – but that’s changing.

It’s not just humans that have DNA. Microbes have it too. So do cancer cells. As it turns out, the most important distinctions among cancers are not the organ that they start in but the DNA of the cancerous cells. Increasingly, researchers who decode the DNA of a cancer cell are gaining insight it into what makes it tick. Know what makes it tick and you have a good insight into how to kill it – “targets” as the pharma guys call them. Find a compound that attacks a facet of a cancer cell’s unique biology and you can, in theory, kill it. Importantly, attack a target unique to the cancer cell and you kill it without killing healthy cells. No more poisoning the patient in the hope the cancer gives out first.

The bad news for big pharma is that if cancer proves to be a hundred unique diseases, there may not be a single blockbuster drug. The good news is if we have 100 drugs each of which cures a small subset, cancer will be effectively cured. Thanks to FDASIA, those drugs will be approved cheaper and faster than anything that has come before through the “breakthrough therapy” process that was discussed in my previous blog post.

In the language of game theory, that’s just a better game. If a drug developed in this way hits its target, you won’t need a biostatistician to tell you if it works. Even a layman will be able to see it. And Congress has greased the skids at the FDA to make sure such compounds aren’t hung up in clinical trials for the next fifteen years.

How do we know this isn’t hype? After all, I saw my first laboratory rat in remission in 1987. While I’m sure laboratory rats around the world rejoiced, the drug never worked in humans. Why is it different this time? Because the previously intractable problem has been broken into pieces, and each of the pieces is better understood. Previous development efforts were akin to World War II style bombing – send 500 planes and hope a bomb or two hits the precise target.  This iteration feels more like laser guided bombs. Unfathomable to a B-17 pilot, but put together lasers and microcomputers and it becomes an engineering problem. Not easy, to be sure, but no longer a roll of the dice. Interestingly, the WWII metaphor applies just as well to the patient experience – with the patient’s general health in the role of collateral damage and the cancer cells themselves in the role of the target.

Improved odds translate into a better risk return profile, which in turn justifies an increase in exposure. And I have enjoyed sharing the narrative with my friends and family members. And now with you. I hope we’re right on this one, and not just because of the potential for excess returns.

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A nautical term that indicates a favorable position relative to the wind. A ship that "has the weathergage" has the initiative and hence a significant advantage over its rivals.